Mortgage bonds continue to trade in a sideways channel as the market decides whether to make a break up or down. If the stock market continues to climb higher, as most indications suggest, the ongoing positive economic data may eventually cause bonds to fall below the 200 day moving average. When this does happen, mortgage rates will climb higher. Although it may be a while before this occurs, the likelihood is that it will occur in the coming weeks or months.
Weekly new unemployment claims were reported at 315,000, which is 9,000 below last week’s revised number and 14,000 below what the market anticipated. In addition, retail sales for February were reported to be up .3% while the market expected an increase of .2%. Both of these reports are positive for the stock market, but a drag on mortgage rates. However, so far this morning, mortgage bonds turned from negative to positive and the stock market is down slightly.
With mortgage bonds in a sideways channel, there isn’t much urgency to lock unless they fall below the 200 DMA. In light of having the support of the 200 DMA, we will continue with our floating bias. However, watch closely as markets can reverse and deteriorate quickly.